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AHF: For the Second Time, Judge Squashes California Law that Would Cut Medi-Cal Rates to Safety Net Providers

LOS ANGELES --(Business Wire)--

In a ruling
issued last week, Federal District Judge Manuel L. Real (United States
District Court, Central District of California, Case No. CV 09-8199-R)
reaffirmed his previous May 2013 judgment and permanent injunction
against California that blocks the state from making and continuing
drastic cuts to reimbursement rates for drugs dispensed by safety net
providers including AIDS
Healthcare Foundation (AHF) and others that serve Medi-Cal
(Medicaid) patients. In the court's first judgment of May 2013, the
judge enjoined enforcement of California Welfare & Institutions Code
section 14105.46 because it was enacted without consideration of its
impact on Medi-Cal beneficiaries, in violation of federal law.
California's Department of Health Care Services (DHCS) subsequently
appealed, but while on appeal, the federal agency that oversees Medicaid
rate setting (the Centers for Medicare & Medicaid Services, of CMS)
approved an amendment to California's State Medicaid Plan that included
the same rate cuts contained in Section 14105.46. The Ninth Circuit
Court of Appeals vacated the judgment and sent the matter back to the
trial court to assess the impact of CMS's approval. After considering
the matter, the court ruled that the approval did not change the fact
that the state law was invalidly enacted and could not be enforced and
reaffirmed the injunction against the law's enforcement.

"In seeking to reduce its healthcare costs several years ago,
California passed a law requiring safety net providers like AHF to only
purchase so-called '340B drugs' (drugs purchased via a federal drug
discount program) for use in-and state reimbursement by-California's
Medicaid program," said Tom Myers, General Counsel and Chief of
Public Affairs for AIDS Healthcare Foundation. "AHF sued, and that law
was invalidated; however, the federal Centers for Medicare and Medicaid
Services subsequently approved the rate reduction contained in the
California law. A question remained, however: Did that later federal
approval validate and make lawful the earlier California law allowing
for such drastic reimbursement cuts? We were pleased to learn that in
his ruling last week, Judge Real said 'no' the California law is still
invalid."

In its legal complaint from 2009, AHF asserted, "the State of
California unfortunately, and illegally, has tried to address its budget
woes by reducing Medi-Cal payment rates to nonprofit, safety net medical
providers, paying less to these providers than it pays to for-profit
businesses for the very same services." The suit added, "…the
State has enacted a statute that (1) violates both federal ad State
constitutional guarantees of equal protection, (2) impermissibly
intrudes on and is preempted by federal law specifically intended to
provide a financial benefit to nonprofit safety net providers like AHF,
and (3) violates federal law covering the Medicaid program."

"The rate cuts California officials forced on Medi-Cal safety net
providers risked cutting lifesaving pharmacy services down to the bone
for AIDS patients who depend on AHF or other nonprofit providers for
their lifeblood," said Michael Weinstein, AIDS Healthcare
Foundation President. "We believed that California's actions-trying to
balance its budget on the backs of some of the poorest and most
vulnerable citizens by squeezing safety net providers like AHF-were not
only illegal under state and federal law, but that they also threatened
the very existence of such nonprofit providers. We are grateful that
Judge Real reaffirmed and upheld his ruling granting a permanent
injunction blocking further implementation of the law."

"When it enacted Section 14105.46, California needed to comply with
federal law by considering the impact of provider rate cuts on Medi-Cal
beneficiaries. DHCS admitted in court that neither it nor the
Legislature considered this impact before the Legislature rushed to
enact Section 14105.46 in 2009. Nothing that has happened since can
change that history, thus, the court reaffirmed its injunction of the
law, providing relief to thousands of struggling safety net providers,"
said Laura Boudreau, Chief of Operations for AIDS Healthcare
Foundation.

Background on the Federal 340B Program:

Reducing Drug Prices for Safety Net Providers in Order to Advance
their Missions

The Veterans Health Care Act of 1992 created what is now commonly known
as the 340B Program. A component of this Act requires drug manufacturers
to provide outpatient drugs to specific entities at a reduced price. For
participating entities, the reduced price affords an average savings of
approximately 20% on prescription drug purchases.

The entities eligible to participate in the 340B program are all, by and
large, nonprofit and governmental safety net medical providers, who
primarily provide medical care to low income and indigent people. AHF is
able to participate in the 340B program because it provides medical care
to people with HIV/AIDS under the Ryan White CARE Act, a federal program
designed to provide care to indigent Americans with HIV/AIDS.

Savings from the 340B program work in two ways. First, for entities that
directly pay for and distribute drugs, they are able to buy these drugs
at a lower price, and thus can either purchase more drugs to provide
more services, or utilize the savings to provide other services. Second,
for entities that purchase the drugs but are reimbursed by a third party
(such as an insurance plan), the 340B program allows for a larger
difference between the purchase cost and the reimbursement fee, which
creates additional resources for the nonprofit entity.

340B participating entities are able to utilize the savings from drug
purchases in numerous ways that further their nonprofit and governmental
missions as safety net providers. Entities that participate in the 340B
program most commonly use the savings to:

Increase the number of patients served;

Offset losses from providing pharmacy services for less than full
compensation;

Reduce prescription prices to patients; and

Increase the services provided.

Section 14105.46: How the Reimbursement Cut for
Safety Net Providers Came About in 2009

California Welfare & Institutions Code Section 14105.46, which requires
safety net providers to bill and be reimbursed by Medi-Cal at their
actual 340B acquisition cost plus a nominal dispensing fee was enacted
on July 28, 2009, when, after the conclusion of the Fourth Extraordinary
Session of the Legislature (to address the state's budget crisis),
Governor Schwarzenegger signed the Special Session Budget Bill and
Assembly Bill X4-5 (the Special Session healthcare trailer bill). Before
the law, safety net providers could opt to forego the 340B discount,
obtain drugs at normal wholesale price, and be reimbursed by the
Medi-Cal list price, like other pharmacies. Section 14105.46 changed
this by removing this option and forcing safety net providers to bill
and be reimbursed at a much lesser amount - an amount that DHCS itself
recognized did not cover the providers' costs of purchasing and
dispensing drugs to Medi-Cal beneficiaries.

Due to statewide cutbacks and statutory changes, healthcare providers
have been steadily leaving the Medi-Cal program, making it progressively
more difficult for patients with Medi-Cal to find appropriate care and
services. Despite the exodus of health care providers from the program,
the California legislature has continued to enact laws that are likely
to further reduce provider participation in Medi-Cal. Section 14105.46
is no longer in the ranks of such laws.

About AIDS Healthcare Foundation

AIDS Healthcare Foundation (AHF), the largest global AIDS
organization, currently provides medical care and/or services to more
than 315,000 individuals in 34 countries worldwide in the US, Africa,
Latin America/Caribbean, the Asia/Pacific Region and Eastern Europe. To
learn more about AHF, please visit our website: www.aidshealth.org,
find us on Facebook (News - Alert): www.facebook.com/aidshealth
and follow us on Twitter (News - Alert): @aidshealthcare.